Thursday, October 18th
What started out as a positive trading day was shaken by an early release of Google’s earnings. Shares dropped more than 10% on the released data as the numbers stated they missed earnings and revenue estimates. The pre-release mistake was disturbing to the markets across the board. What had set up a modest upside turned into a modest downside for the indexes, but some reversals were noticeably bigger. Thus, we are back to the earnings drawing board for technology stocks and the NASDAQ 100 index.
The current driver remains earnings, albeit more balanced on the heels of Google’s news. There was other positive earnings out today from Verizon which gained 2.5% on the day. Travelers in the insurance sector beat expectations and gained 3.5% on the positive news. The earnings are mixed, but still are on the positive side overall. We have noticed the trend towards lower than expected revenue, but higher net earnings. This trend is a common thread among the early announcements and worth watching as we move deeper into the reports.
Banks ended the day flat, but some strong regional bank earnings our todya. KRE (regional bank ETF) ended the day off slightly, but able to hold the gains from Wednesday. KIE continued the trek higher as the insurance stocks have upside momentum on positive earnings. XLF was up modestly as the broader sector overall had a positive day.
Economic news got a boost from the Philly Fed report which improved for the first time since April. The positive 5.7 reading versus a negative 1.9 for September helped the outlook somewhat on the manufacturing side. Jobless claims were negative jumping 46,000 claims to 388,000 well above the 365,000 expected. The Leading Economic Indicatorsrose 0.6% versus the 0.1% expected. That was a positive reading for investors. The challenge was Google mixed up the news with a bad earnings report early.
Utilities broke higher again today adding to the breakout on Wednesday. The uptrend is back in play for the sector and the stocks.
What am I watching?
The Google mix up gives us a reset on Thursday’s opportunities. Watch to see how investors react after digesting the negative report from Google relative to the broader market.
Semiconductors bounced 3.7% to start the week… can they follow through and provide a trade opportunity? Some selling, but the upside is still a possibility. Look for move above $31.80 on SMH. If the downside gains momentum watch for short play on Technology sector. TECS – 3X leverage short (high risk) potential trade for those who are disciplined.
Treasury Bonds – The downside is back in play and TBT is the trade. Yields moved back above 3% on Thursday. $66 ideal entry for the trade.
Natural Gas fell 4.2% last two days. The test of support is the next course of action at $21.40 on UNG. Held support on Wednesday and FCG moved above $17.95 as a trade opportunity also. UNG bounced 2.6% Watch upside.
China continues to move higher as GDP data showed 7% growth. Buyers are putting money to work. FXI cleared $35.70 for entry on confirmation of the break higher. Manage your downside risk on the trade. $36.85 stop works here.
KIE leading the financials. KRE leading the downside in financials.
NASDAQ 100 index – break lower on the Google news. Need a upside catalyst? QID opportunity on the break lower. MSFT bad new after hours could have additional impact on the sector.
Gasoline – UGA – Hit against resistance again $61.40 and is testing lower. $58.75 is support. Watch to see if it holds going forwards? Short play if we break lower. Gapped lower again today to test $56.50. Watch this level, if we break the downside risk in the trade is bigger.
Apple – (AAPL) Can the stock hold support at the $623 level? The downside is back on the Google news and the rapidly building negative sentiment. Lost 1.8% and holding the uptrend line… again. Earnings are next week on the 24th.
Telecom has selling from the large cap stocks. This is pushing the index lower overall, but the Verizon and AT&T charts reflect the primary weakness in the sector. Monitor the opportunities as both have established a support mark. If they head higher look for positions in both. Verizon earnings were bright spot on Thursday moving higher.
Housing (XHB) bounced off support at the $24.50 mark and moved back towards the high. Strong move back to the upside on housing data. Watch for break above the $26.30 mark for entry. Still strong outlook if we can find some financing for interested and qualified buyers.
Below we address the sectors looking forward:
1) US Equities:
S&P 500 Sectors-to-Watch – The index bounced after holding near the 1430 support, and has now challenged the top of the trading today 1464 and closing at 1457. The challenge or test of support last week held and we another another pivot point for the index short term with October 17th being the recent high. Basic Materials, Healthcare, Financials, Industrials and Energy are the leaders off the 10/12 low.
The Scatter Graph below is run from a starting point off the high on 9/14 following the FOMC meeting rally and the current high. As you can see we drifted lower and tested support again. The leaders turned lower last week, but as seen on the chart they have turned up again. Utilities, Healthcare and Consumer Staples are are the leaders on the bounce on 10/12. Financials have come back into the picture on the upside and worthy of watching near term.
The up and down movement of the broad index is looking for leadership near term. We continue to see weakness in technology as witnessed today with XLK dropping back to the October 12th low. Some swing trading is working, but the volatility is alive and well. Be patient at these levels and let the direction define itself going forward.
Financials – We want to watch this during the current rally and let the leadership be defined. KIE, SPDR Insurance ETF is taking the lead within the sector as it hits a new high on Tuesday. Banks have struggled and we have to watch the volatility in the stocks. Overall the uptrend remains in play.
WATCH: XLF – Entry $16.10 Hit entry on Wednesday
Energy – The sector has been churning on the up and down movement in crude. Moved through the top end of the range on Wednesday for the entry. Stocks are volatile short term.
WATCH: XLE – Broke from trading range $72.50 – 74.50. $74.50 Entry Wednesday. $74.20 Stop
Telecom – Weakness in the big cap stocks continues to drag the sector lower. Looking for a bounce off support near term. Verizon earnings gave an early lift to the sector which helped the sentiment. T – was mixed on the day following google lower after a positive turn to the upside earlier in the day.
WATCH: IYZ – $25.75 Entry Added – Stop $25 / WATCH: VZ & T weakness as a buying opportunity. Both found support watching for entry points. T- $36.21 Entry / VZ – $45 Entry.
Healthcare – Big move higher for the sector index has tested back on the Google news. We have been looking for new leadership in the sector. The pharma companies were the leader Tuesday and followed through on Wednesday. Some testing today, but the upside is still in play.
WATCH – IHE – Leadership? Breakout and play opportunity at $91.70. ENTRY $91.70 Wednesday.
NASDAQ Index – The index has been under pressure from the large cap technology stocks selling, and that resumed today with Google. The big gap lower on the early earnings release pushed the index lower by 1.1% on the day. Watching to see how this follows through. Break below $66.60 brings the downside into play. QID is the short play if the move develops.
WATCH: – QQQ – Entry $68.40 (be patient as we have not hit the entry point yet.)
Transportation Index – The transports bounced off support last week at the $86.75 mark on IYT. They were chugging along nicely, but hit some resistance as the broad indexes have been selling. Still looking for this to be an indicator on the upside or downside for the economic picture short term.
WATCH: IYT – Entry $90 – retest of support. Added at $90 on Tuesday. Stop – $90 break even
Dollar – The dollar, like stocks, is being pushed up and down based on the daily sentiment towards Europe and the global economic picture. The downside pressure on the dollar has met support currently and bounced. Looking for a clear direction on the buck. bounced off support today.
WATCH: UDN – Entry: $27.40 Added on Tuesday. Stop – $27.35
3) Fixed Income:
Treasury Bonds – Bond outlook shifted lower again on the buying in stocks. Be patient here and let the trade set up short term. $65.35 entry for TBT. Yield on the 30 year bond moved back above 3% on the day.
WATCH: TLT – Moving lower again Short play with TBT. $65.35 Entry (Hit Wednesday)— Stop $64.50
High Yield Bonds – We questioned the downside risk over the last month, but we have now bounced as risk trade is on again. Watching the upside test near the $93.90 level. The break above $92.70 was a positive for the bonds.
WATCH: HYG breaking higher as investors put the risk trade on again. Missed entry.
4) Commodities: Tough sector to own currently with the rise in volatility across the sub-sectors. Watch for shift in direction short term. Small bounce on Tuesday – watch to see how the price moves.
WATCH: GLD – Broke support and bounced slightly. $170.50 entry? / SLV – Broke lower, but found some support? Entry $32.30.
WATCH: DBB – Tested lower again as the selling accelerated. No support yet — $18.20 – Held for now. SLX jumped higher and cleared $46.50 resistance. JJC was higher as well and FCX broke above resistance at $41.60
WATCH: OIL – up/down??? Watch to see if we gain any short term clarity. Stocks are moving despite the lack of enthusiasm for oil. XLE moved back above the $74.50 mark.
WATCH: UNG – Fell 4.2% last few days – but bounced 2.6% today. Watch the test of support near $21.50. FCG broke out as well above $17.95. Hit entry point today. Stop – $17.70
5) Global Markets: The global markets bounced last week off the low at $53 on EFA. It has been testing the support level again along with the 50 day moving average. Bounced off support and followed through higher on the news from Spain on Tuesday. 4.7% gain in two days and $55.25 is the new high to clear. Watch and let this play out short term.
WATCH: EFA – Moving higher again. $54.75 Entry — Stop $$53.80
WATCH: EEM – Entry $42.10 — Stop $41.60 – Break higher on Wednesday holding
6) Real Estate (REITS) – The sector tested the recent high and support at $64 (IYR). Watch your downside risk if you still own this sector. We are looking for upside play if support holds, watch the $64.80 level for entry on upside. Broke higher today gaining 1%.
WATCH: IYR – Entry $64.10 — Stop $63.75
WATCH: REM – Shift in sentiment and broke support at $15 as the downside gained momentum. Watch a move above $14.50 as possible entry. Hit today – Watch at $14.75 entry. NLY is acting the same short term as money rotates from the sector. Watch for support?$16.25 entry possible.
7) Global Fixed Income – Uncertainty about the sovereign debt issues remain. Thus, the lack of willingness to accept much in the way of risk from this sector.
WATCH: PIMCO Global Advantage Strategy Bond (PAFCX) is hitting new highs and worth watching as a opportunity if we move above the $11.80 which it hit today for an entry. $11.81 Entry – Stop $11.74
WATCH: Emerging market bonds (EMB) – they continue to move steadily higher. Testing the highs with pullback .
WATCH: International Corporate Bonds (PICB) – Testing near the highs, watch how it plays out short term.
Watch: International High Yield Bonds (IHY) – Testing, but big break higher pulled back today watch for entry near $26.38.
Watch and play according to your risk tolerance on any position taken. Everyone has different trading styles and you have to find what works for you and your personality. Don’t put yourself in positions you don’t understand or take risk you can’t tolerate. Not every trade results in a profit, but controlling your downside risk determines your long term results. Trade Smart!